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Network-based macro fluctuations: what about an open economy?

Author

Listed:
  • Mihnea Constantinescu

    (Economics Department, Bank of Lithuania)

  • Kristina Barauskaite

    (Economics Department, Bank of Lithuania. Economics Department, ISM University of Management and Economics)

Abstract

Do input-output linkages of intermediate products affect the spread of sectoral shocks at the aggregate level in Lithuania, a small and open economy? What role does openness play in the empirical exercise? We answer these questions by: (i) constructing the Lithuanian input–output transactions tables with domestic-only and domestic and imported sector-by-sector direct requirements, and (ii) applying Acemoglu, Carvalho, Ozdaglar, and Tahbaz-Salehis [(2012). The network origins of aggregate fluctuations. Econometrica, 80(5), 1977-2016] network-based methodology and Gabaix and Ibragimov's [(2011). Rank-1/2: A simple way to improve the ols estimation of tail exponents. Journal of Business & Economic Statistics, 29(1), 24-39] modified log rank-log size regression. Our results indicate that the structure of input-output linkages cause aggregate economic volatility to decay at a rate lower than the established theoretical prediction. Indirect linkages play an equally important role for both domestic-only and aggregated domestic and import transactions.

Suggested Citation

  • Mihnea Constantinescu & Kristina Barauskaite, 2018. "Network-based macro fluctuations: what about an open economy?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 18(2), pages 95-117.
    • Handle: RePEc:bic:journl:v:18:y:2018:i:2:p:95-117
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    File URL: https://www.tandfonline.com/doi/full/10.1080/1406099X.2018.1517997
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    Citations

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    Cited by:

    1. Soroosh Soofi-Siavash & Kristina Barauskaite, 2019. "Sectoral Production and Diffusion Index Forecasts for Output in Lithuania," Bank of Lithuania Discussion Paper Series 12, Bank of Lithuania.
    2. Barauskaite, Kristina & Nguyen, Anh D.M., 2021. "Global intersectoral production network and aggregate fluctuations," Economic Modelling, Elsevier, vol. 102(C).

    More about this item

    Keywords

    Input–output network; aggregate volatility; small-open economy; complexity economics;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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